The circular states that these collections “constitute income payments or compensation for beneficial services it provides to its members and tenants” and therefore subject to income tax.

Based on that premise, value-added tax should likewise be imposed on them “since they constitute income payment or compensation for the beneficial services it provides to its homeowner-members.”

If these collections are VAT exempt, they shall nonetheless be liable for percentage tax under the Tax Code.

The BIR did not give any explanation for lifting the decades-old exemption of these collections from income tax. It simply said “the previous interpretation that the assessment dues are funds which are merely held in trust by a homeowners’ association lacks legal basis and is hereby abandoned.”

Justification

Obliquely, the BIR was saying Henares’ predecessors were either intellectually challenged or incompetent when they declared those assessments as exempt from income tax.

When the Supreme Court modifies or abandons a longstanding legal doctrine, it takes pain to explain the circumstances behind its action or why an earlier decision of fellow magistrates had to be set aside. This is done, not only out of respect to their former brethren, but to make the affected parties understand the rationale behind it.

Apparently, the BIR does not think it owes the public that modicum of courtesy. Its reversal of past exemptions sounded like a brush-off made by an arrogant superior to a subordinate. Basta sinabi ko, tama yan! (Because I said so, it’s correct)

And yet, with regard to the imposition of VAT and percentage tax, the circular cited at length the applicable law and court ruling explaining why non-stock, non-profit organizations are liable to pay VAT on the sale of goods or services.

The only logical conclusion that can be deduced from the difference in treatment is the BIR cannot cite any credible legal basis to justify its abrupt removal of the exemption of these collections from income tax as against those of VAT and percentage tax.

Necessity

To aggravate matters, the BIR does not seem to understand that homeowners organize homeowners’ associations and collect money from their members because they have to defray the costs of the services that the government is supposed to provide them.

When taxpayers pay income tax, value added tax and other forms of indirect taxes, they expect the government to use that money to, among others, pay for the services and equipment of law enforcement personnel who will protect them from criminals, construction and maintenance of good roads, and provisioning of clean and potable water.

Since the government is unable to perform these obligations despite the taxes paid, homeowners are compelled to draw money from their own pockets and put them in a pool to enable them, through their associations, to engage the services of private security guards, build and maintain subdivision roads, and operate and maintain their own sources of water.

In other words, government neglect and inefficiency have forced homeowners to take matters into their own hands to provide for basic living necessities.

It is ridiculous that the money that homeowners are obliged to put up (and in the process, sacrifice other personal needs) to enable them to enjoy the benefits of civilized living that the government is responsible for is now liable for taxes.

Ahead of Congress, the BIR has added a new doctrine in tax collection: Government neglect is a potential source of revenue. Shame!

Exemption

To the BIR’s credit (tongue in cheek), the circular says that these taxes can be avoided if the following conditions are met:

— The homeowners’ association is organized as an “association” under Republic Act 9904, or the Magna Carta for Homeowners and Homeowners’ Associations;

— The local government unit that has jurisdiction over the association certifies that it does not have the resources to render the basic community services and facilities being supported by the association’s funds;

— The association should prove that its income and dues are being used for those services.

At first glance, these conditions look easy to satisfy. But knowing our local government officials, the BIR officials who drafted the circular must have been living under a rock all these years.

Going by the example set by our senators and congressmen, these local kingpins cannot be expected to issue the certification about their inability to provide basic community services without getting something in return for the association’s enjoyment of the tax exemption.

The trade-offs for that important document include a share in the savings that may be gained from the exemption, free use of the association’s facilities, electoral support, or outright under-the-table payments.

With this tax escape clause, the BIR may have unwittingly given local government officials another venue for graft and corruption.

If the BIR decides to come up with another circular of similar nature in the future, it might consider adopting the following lines of the Beatles’ hit song in the 1980s entitled “Taxman” in its mission statement:

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